What is Equity or Net Worth ?

Equity is own/inside source of funding. It is the money that a promoter (s) or shareholders or both put in a company. Also known as the shareholders equity or owner's net-worth of the company.

For example : 

How to calculate Net Worth or Equity of company ??

Way 1: All that is leftover after the debt repayments.

i.e. Equity /Net Worth = Assets - Liabilities

Example:

Way 2: Adding up Share Capital and Other Equity (Reserves) together.

i.e. Equity / Net Worth = Share Capital + Other Equity (Reserves)

Example:

1. Voting Rights : Stakeholder of the company has the power to participate in the company’s meetings and they have the right to opinion on a company’s executive decisions. However, the power is  executed indirectly through Board of Directors.

2. Income from Equity Shares : Shareholders has right to claim on company’s profits (leftover profits after dividends paid to prefered shareholders).

3. Claim on Company’s Asset : Shareholders has claim on the company’s assets (in case liquidation). But assets are first used to fulfil the claims of prefered and debt shareholders.

4. Limited Liability : Shareholders will not be affected by the losses by the company (even at the time of its liquidation).